Senior Labor backbenchers are urging the government to force British banks to expand lending to small businesses and low-income communities, warning that the lack of affordable finance is hurting entrepreneurship and economic resilience.
Gareth Thomas, a former business minister, has introduced a 10-minute bill that would require banks to measure, disclose and improve how they serve underserved communities and smaller businesses. The proposal mirrors the U.S. Community Reinvestment Act, which requires American banks to demonstrate how they support poorer areas and small businesses.
Thomas said the cost of living crisis had exposed deep weaknesses in access to affordable credit across the UK economy. He argued that millions of households and young entrepreneurs are struggling to obtain low-cost financing at the very moment when it could prevent financial hardship or enable business growth.
The bill was supported by a group of senior Labor figures including Meg Hillier, chair of the Treasury Select Committee, Liam Byrne, chair of the Business and Trade Committee, Sarah Owen, chair of the Work and Pensions Committee, and former shadow chancellors Anneliese Dodds and John McDonnell.
Under the proposed law, banks would be required to report on their performance in reducing financial exclusion and improving access to finance for small and medium-sized enterprises. Regulators would then rate banks against these criteria, which would increase transparency and apply pressure to improve results.
The bill would also force banks to provide greater support to credit unions and community development finance institutions (CDFIs), which often specialize in personal lending to small businesses and individuals overlooked by mainstream lenders. In the United States, many banks meet their obligations under the Community Reinvestment Act by partnering with such organizations.
The push comes even as the Treasury released a financial inclusion strategy last year that included support for expanding credit unions. Activists argue that the strategy lacks enforceable obligations for banks and relies too heavily on voluntary measures from the sector.
Hillier said financial inclusion should not be treated as a side issue. “Too often, improving access to finance is seen as a box-ticking exercise rather than a key economic priority,” she said, adding that the finance committee is currently considering whether the government’s plans go far enough to address structural barriers to funding.
Small business advocates welcomed the proposal. Michelle Ovens, founder of Small Business Britain, said many business owners still face significant barriers to finding fair and affordable banking services. She described the bill as a step towards greater accountability across the financial sector.
The bill is unlikely to progress in its current form, but it reflects Labor MPs’ growing unease about the government’s economic direction, particularly after recent policy U-turns on business rates relief for pubs and changes to inheritance tax thresholds for farmland.
A Treasury source warned that banks are already subject to financial inclusion obligations under existing regulations, including the Financial Conduct Authority’s consumer duty, and suggested the bill could duplicate current requirements.
Still, the proposal underlines increasing political pressure for a more interventionist approach to small business financing as concerns grow that limited access to affordable credit is holding back growth across much of the UK economy.
